Deck 15: Statement of Cash Flows

Question 1

A decrease in accounts payable is added to net income in the operating activities section of the statement of cash flows prepared under the indirect method.

Answer 1

False

Question 2

Noncash investing and financing transactions,such as the exchange of common stock to purchase assets,represent significant investing and financing activities and are disclosed in a supplementary schedule that is attached to the statement of cash flows.

Answer 2

True

Question 3

The sale of land for cash would be classified as a cash inflow from a financing activity.

Answer 3

False

Question 4

Investments in stock are reported as an investing activity on the statement of cash flows.

Question 5

Cash inflows that enter into the determination of net income are classified as financing activities on a statement of cash flows.

Question 6

The activity from the balance sheet to be presented in the financing activities section of the statement of cash flows is based on an analysis of stockholders' equity only.

Question 7

The issuance of common stock in exchange for a building would appear both as a cash inflow in the financing activities section of the cash flow statement and also as a cash outflow in the investing activities section.

Question 8

The amount for "net cash from operating activities" will be different depending on if the direct method or the indirect method is used to construct the statement of cash flows.

Question 9

Under the indirect method of determining the net cash from operating activities on the statement of cash flows,increases in current assets such as accounts receivable are added to net income.

Question 10

All SEC-registered firms must issue a statement of cash flows,in addition to the income statement and balance sheet.

Question 11

The indirect method of reporting the cash flows from operating activities on the statement of cash flows is the method most widely used in practice.

Question 12

On the statement of cash flows,the indirect method adjusts net income to determine the net cash flows from operating activities.

Question 13

Cash flow activities that include the cash effect of transactions that create revenues and expenses and thus enter into the determination of net income are classified as operating activities on the statement of cash flows.

Question 14

A statement of cash flows indicates the sources and uses of a firm's cash during a period.

Question 15

Transactions that involve the acquisition or sale of long-term assets are generally classified as investing activities on the statement of cash flows.

Question 16

Under the indirect method of determining the net cash from operating activities on the statement of cash flows,depreciation is subtracted from the net income for the period.

Question 17

For a statement of cash flows,firms are required to classify their cash activities into three categories: operating,investing,and borrowing.

Question 18

Cash received on the sale of equipment would be considered a financing activity on a statement of cash flows.

Question 19

Companies can use two different methods to report the amount of cash flow from their operating activities on the statement of cash flows.

Question 20

Determining the cash flows from operating activities generally requires analyzing each item on the income statement as well as the current asset and current liability accounts.

Question 21

Issuing shares of common stock,paying dividends and paying off debt are all examples of _______________.

Question 22

The _____________________ provides information regarding the sources and uses of a firm's cash.

Question 23

The __________________ computes operating cash flows by adjusting each line on the income statement to reflect cash flows.

Question 24

If a firm uses the direct method for reporting operating activities on the statement of cash flows,it must present a separate schedule which reconciles net income to net cash from operating activities.

Question 25

All firms that are registered with the ______________________ must issue a statement of cash flows.
or
or

Question 26

________________ are the ongoing,day-to-day,revenue-generating activities of an organization.

Question 27

Activities that decrease cash are uses of cash and are referred to as ___________.

Question 28

Highly liquid investments such as Treasury bills,money market funds,and commercial paper are examples of ___________________.

Question 29

Activities that increase cash are sources of cash and are referred to as ___________.

Question 30

Income statements are prepared on a (n)______________.

Question 31

The indirect method and the direct method differ only on how the cash flows from ________________ are calculated.

Question 32

The two approaches to calculating operating cash flows are the _______________ and the _____________.

Question 33

Under the indirect method,the net cash flow from operating activities is computed by adjusting net income to remove the effect of all deferrals of past operating cash receipts and payments,and all accruals of future operating cash receipts or payments.

Question 34

When an investing or financing activity takes place without affecting cash it is referred to as _________________________.

Question 35

A loss on the sale of equipment is subtracted from net income in determining net cash from operating activities under the indirect method.

Question 36

The format that should be followed in preparing the statement of cash flows is known as the ______________.

Question 37

Acquiring new equipment,selling long-term investments,and purchasing land are all examples of _______________.

Question 38

The ______________ computes operating cash flow by adjusting net income for items that do not affect cash flows.

Question 39

An advantage to using a worksheet to organize the information of preparation of the statement of cash flows is that it uses a spreadsheet format allowing the preparer to use a PC and spreadsheet software.

Question 40

The direct method of reporting cash flows from operating activities involves reporting major classes of cash receipts and cash payments.

Question 41

The indirect and direct methods of preparing the statement of cash flows are identical except for the

A)financing activities section.
B)investing activities section.
C)operating activities section.
D)significant noncash activities section.

Question 42

Cash flows from operating activities,as reported on the statement of cash flows,would include

A)depreciation.
B)gain on sale of equipment
C)increase in accounts receivable.
D)all of these

Question 43

The order of presentation of activities on the statement of cash flows is

A)operating,investing,financing.
B)operating,financing,investing.
C)financing,operating,investing.
D)financing,investing,operating.

Question 44

Worksheets offer increased ____________ in form and the added convenience of spreadsheet software packages.

Question 45

Cash flows from acquiring and selling equipment are classified as

A)operating activities.
B)investing activities.
C)financing activities.
D)distribution activities.

Question 46

In the ________________,each line on the income statement is adjusted to produce a cash flow income statement.

Question 47

Cash flows from acquiring and retiring long-term debt are classified as

A)operating activities.
B)investing activities.
C)financing activities.
D)purchasing activities.

Question 48

Which of the following investing activities results in a cash inflow?

A)selling treasury stock.
B)retirement of bonds.
C)disposal of a building.
D)paying cash dividends.

Question 49

Which one of the following affects cash during a period?

A)Payment of an account payable
B)Declaration of a cash dividend
C)Write-off of an uncollectible account receivable
D)Recording depreciation expense

Question 50

Preparation of the statement of cash flows relies on the beginning and ending ____________.

Question 51

In developing the cash flows from operating activities,most companies in the United States

A)use the indirect method.
B)use the direct method.
C)present both the indirect and direct methods in their financial reports.
D)prepare the operating activities section on the accrual basis.

Question 52

The primary purpose of the statement of cash flows is to

A)provide information about the investing and financing activities during the period.
B)prove that revenues exceed expenses if there is a net income.
C)provide information about the sources and uses of cash during a period.
D)facilitate banking relationships.

Question 53

The acquisition of land by issuing common stock is

A)only reported if the statement of cash flows is prepared using the direct method.
B)a cash transaction that is reported in the investing section in the body of the statement of cash flows.
C)a noncash transaction that is reported in the operating section in the body of the statement of cash flows.
D)a noncash transaction that is disclosed in a supplementary schedule attached to the statement of cash flows.

Question 54

Which balance sheet accounts are affected by financing activities?

A)current assets and current liabilities.
B)long-term assets.
C)long-term liabilities.
D)intangible assets.

Question 55

Financing activities involve

A)purchasing patent.
B)receipt of dividends.
C)selling of investments.
D)issuance of stock.

Question 56

Which balance sheet accounts are affected by operating activities?

A)current assets and current liabilities.
B)current assets and long-term assets.
C)long-term assets and current liabilities.
D)long-term liabilities and stockholders' equity.

Question 57

The statement of cash flows does not report the

A)sources of cash in the current period.
B)uses of cash in the current period.
C)amount of checks outstanding at the end of the period.
D)change in the cash balance for the current period.

Question 58

As transactions increase in number and complexity,a ____________ becomes a useful aid in preparing the statement of cash flows.

Question 59

Some individuals prefer to show operating cash flows as the difference between ___________ and ____________.

Question 60

Which of the following transactions does not affect cash during a period?

A)Increase in amortization expense
B)Payment of an accounts payable
C)Issuance of bonds
D)Purchase of a long-term investment

Question 61

Which method of preparing the operating activities section of the statement of cash flows adjusts net income to remove the effects of deferrals and accruals for revenues and expenses?

A)The direct method
B)The indirect method
C)Both direct and indirect methods
D)Neither the direct method nor the indirect method

Question 62

The decision whether to use the direct or indirect method on the statement of cash flows is relevant with respect to

A)operating activities only.
B)investing activities only.
C)financial activities only.
D)all activities.

Question 63

Which of the following would not be needed to determine net cash provided by operating activities?

A)Depreciation expense
B)Change in accounts receivable
C)Payment of cash dividends
D)Change in prepaid expenses

Question 64

Using the indirect method,patent amortization expense for the period

A)is deducted from net income.
B)has no impact on cash flows.
C)causes cash to decrease.
D)is added to net income.

Question 65

Smith and Company reported net income for the current year.Which of the following business transactions would cause cash from operating activities to be higher than the amount of net income?

A)Cash dividends were paid to stockholders during the year.
B)Depreciation expense was recorded for the year.
C)A bank loan was repaid during the year.
D)Equipment was purchased for cash during the year.

Question 66

Using the indirect method,if equipment is sold at a gain,the

A)sale proceeds received are deducted in the operating activities section.
B)sale proceeds received are added in the operating activities section.
C)amount of the gain is added in the operating activities section.
D)amount of the gain is deducted in the operating activities section.

Question 67

In calculating net cash from operating activities using the indirect method,depreciation expense is

A)deducted from net income.
B)added to net income.
C)ignored because it does not affect income.
D)ignored because it is included in the investing section.

Question 68

Which of the following would be added to net income using the indirect method?

A)Loss on sale of equipment.
B)Gain on sale of a long-term investment.
C)An increase in accounts receivable.
D)Proceeds from the sale of a patent.

Question 69

Which of the following would be subtracted from net income using the indirect method?

A)an increase in inventories.
B)loss on sale of investments.
C)depreciation expense.
D)a decrease in accounts payable.

Question 70

In calculating cash flows from operating activities using the indirect method,an increase in inventories is

A)added to net income.
B)deducted from net income.
C)ignored because it does not affect cash.
D)not reported on a statement of cash flows.

Question 71

Which of the following would not be an adjustment to net income using the indirect method?

A)Depreciation expense
B)An increase in prepaid expenses
C)Amortization expense
D)An increase in land

Question 72

In preparing the statement of cash flows,determining the net increase or decrease to cash requires the use of

A)the adjusted trial balance.
B)the current period's retained earnings statement.
C)a comparative balance sheet.
D)a comparative income statement.

Question 73

If a company has both an inflow and an outflow of cash related to property,plant,and equipment,

A)the two cash effects can be netted and presented as one item in the investing activities section of the statement of cash flows.
B)the cash inflow and the cash outflow should be reported separately in the investing activities section of the statement of cash flows.
C)the two cash effects can be netted and presented as one item in the financing activities section of the statement of cash flows.
D)the cash inflow and the cash outflow should be reported in the financing activities section of the statement of cash flows.

Question 74

Which one of the following items is not necessary in preparing a statement of cash flows?

A)Determine the change in cash.
B)Determine the cash provided by operating activities.
C)Determine cash from financing and investing activities.
D)Determine the cash in all bank accounts.

Question 75

Tracy Company reported the following information at the end of 2011 and 2012: An analysis of the company's records indicated that there were no cash flow effects resulting from the changes in the two accounts presented above.How should Tracy report the changes in these accounts on a statement of cash flows?

A)The company should report $55,000 for the acquisition of land as an investing activity and $55,000 for the issuance of stock as a financing activity.
B)The company should report $55,000 as a noncash investing and financing activity for the acquisition of land by issuing common stock.
C)The company should report the issuance of common stock to acquire land in the financing activity section with a net cash flow effect of zero.
D)The company should report the acquisition of land by issuing common stock in the investing activity section with a net cash flow effect of zero.

Question 76

Which one of the following affects cash during a period?

A)Recording amortization expense
B)Declaration of a stock dividend
C)Write-off of an uncollectible account receivable
D)Receipt of an accounts receivable

Question 77

Starting with net income and adjusting it for items that affected reported net income but which did not affect cash is called the

A)direct method.
B)indirect method.
C)cost-benefit method.
D)working capital method.

Question 78

In calculating cash flows from operating activities using the indirect method,an increase in accounts payable is

A)added to net income.
B)deducted from net income.
C)ignored because it does not affect cash.
D)not reported on a statement of cash flows.

Question 79

Which of the following financing activities results in a cash outflow?

A)purchase of long-term investments.
B)collecting accounts receivable.
C)payment of dividends.
D)issuance of bonds.

Question 80

In calculating cash flows from operating activities using the indirect method,a loss on the sale of equipment will appear as a(n)

A)subtraction from net income.
B)addition to net income.
C)addition to cash flow from investing activities.
D)subtraction from cash flow from investing activities.